Value Line

Value Line

Type	Public
Traded as	NASDAQ: VALU
Industry	Financial Services
Founded	1931
Founder	Arnold Bernhard
Headquarters	New York City, New York, USA
Website	www.valueline.com

Value Line is an independent investment research and financial publishing firm based in New York City, New York, USA, founded in 1931 by Arnold Bernhard. Value Line is best known for publishing The Value Line Investment Survey, a stock analysis newsletter that is updated weekly and kept by subscribers to the print edition in a large black or green binder. The company provides information via an online web page with both free and paid content.^[1] The company's brand "The Most Trusted Name In Investment Research" was registered as a trademark by the United States Patent and Trademark Office.

Company background

Value Line, in its current form, was incorporated in 1982 and is the successor to substantially all of the operations of Arnold Bernhard & Co., Inc. In June 2005, AB & Co. owned approximately 86.5% of the Company’s issued and outstanding common stock.

The Company produces investment related periodical publications through its wholly owned subsidiary, Value Line Publishing LLC ("VLP") . VLP publishes in both print and electronic formats The Value Line Investment Survey®, one of the nation's major periodical investment publication, as well as The Value Line Investment Survey - Small and Mid-Cap Edition, The Value Line 600, Value Line Select, The Value Line Fund Advisor, The Value Line Special Situations Service, The Value Line Daily Options Survey and The Value Line Convertibles Survey. VLP also provides current and historical financial databases which include DataFile, Estimates & Projections, Convertibles, ETFs and Mutual Funds in standard computer formats. The Company also markets investment analysis software and includes The Value Line Investment Analyzer (which was last updated in 1999) and Value Line Mutual Fund Survey for Windows (which was last updated since 1998). The Company's print and electronic services are marketed from time to time through media, direct mail and the internet to retail and institutional investors. The company last advertised on television, CNBC, in 2001.

In addition to Value Line Publishing LLC, the Company's other wholly owned subsidiaries include Vanderbilt Advertising Agency, Inc., Compupower Corporation and Value Line Distribution Center (VLDC). Vanderbilt Advertising Agency, Inc. places advertising on behalf of the Company and its subsidiaries' businesses. Compupower Corporation serves the subscription fulfillment needs of the VLP's publishing operations. VLDC primarily handles all of the mailings of the publications to VLP's subscribers. Additionally, VLDC is a disaster recovery site for the New York operations. The Company has a substantial non-voting interest in EULAV Asset Management, investment adviser and distributor of the Value Line Family of Mutual Funds.^[2]

Arnold Bernhard (b Dec 2, 1901 - Dec 22, 1987, Westport, CT), the son of European immigrants, his father came from Germany and his mother from Romania.^[3] Bernhard took an unusual path to success in the stock-picking world. He attended New York City's Stuyvesant High school where he was a distinguished student and a member of The Omega Gamma Delta Fraternity, but failed to graduate by ignoring a graduation requirement. His overall record permitted him to go on to Williams College, where he graduated with honors and membership in Phi Beta Kappa. Bernhard started out on a literary career and wrote several plays and theater reviews for the New York Post and Time. His interest piqued by Edwin Lefèvre's book Reminiscences of a Stock Operator, Bernhard broke into the investment management business, first as an analyst with Moody's Investor Service and later as an account executive managing investments. The Wall Street Crash of 1929 led to his lay off from Moody's, but he retained some of his clients. Bernhard then began to develop his method for picking stocks which he called the "Value Line".

The "Value Line" defined

The "Value Line" was a line representing a multiple of cash flow that Bernhard would visually "fit" or superimpose over a price chart. This was a pioneering attempt to normalize the value of different companies. He soon began publishing his investment survey.

In 1946 Bernhard hired Samuel Eisenstadt, a brilliant and modest young man fresh out of the Army, as a proofreader. Eisenstadt was a graduate of Baruch College who majored in statistics. In 1965 Eisenstadt convinced Bernhard to use a statistical method called ordinary least squares (OLS) regression analysis to replace Bernhard's visual method of fitting cash flow to a price chart. Using scores of Monroe mechanical calculators and a handful of data operators, Bernhard and Eisenstadt produced a stock picking system so successful that it caught the attention of the famed academician Fischer Black of the University of Chicago. Black validated the system's results when he published his famous article in the Financial Analysts Journal, "Yes, Virginia, There Is Hope: Tests of the Value Line Ranking System" in 1973.^[4] The system came to be known as the "Value Line Ranking System for Timeliness".^[5] With Eisenstadt on board, Bernhard continued to expand the business, adding the other publications and mutual funds along the way. In May 1983, Value Line sold stock for the public for the first time (NASDAQ: VALU), though the Bernhard family retained 80% control. Bernhard died in December 1987, but until his death, Bernhard continued his literary interests by combining with W. H. Auden, Jacques Barzun and Lionel Trilling in founding the Mid-Century Book Society.

Shortly after his death, his daughter, Jean Bernhard Buttner, was named CEO of Value Line. Jean Buttner was forced to resign her position as CEO in November 2009, to settle fraud charges by the Securities and Exchange Commission described below.

Value Line Settled with SEC

On September 11, 2009, Value Line settled with the SEC. The settlement offer, in which Value Line neither admits nor denies the investigation’s findings, relates to commissions paid by nine Value Line equity mutual funds to an affiliated brokerage subsidiary from 1986 through November 2004. The settlement offer seeks to avoid costly and protracted litigation. Terms of the settlement offer call for Value Line to pay approximately $43.7 million of the reserve into a Fair Fund to reimburse shareholders who owned shares in the affected mutual funds in the period covered by the settlement. Despite the headline grabbing amount of the settlement, as of January, 2015, not one dollar has been disbursed from the fund to the affected shareholders. The $43.7 million sum includes a fine of $10,000,000 against Value line, $1,000,000 against the CEO, Jean Buttner and $250,000 against the Vice President, David Henigson. In addition, under the settlement offer, the CEO and former CCO would be barred from serving as an officer or director of a public company and from association with an investment adviser, broker-dealer or registered investment company subject, in the case of the CEO, to a limited exception from the associational bar for a period of one year from the entry of the settlement Order to enable steps to be taken that will terminate her association with the Value Line mutual funds, asset management and distribution businesses. Howard A. Brecher, Chief Legal Officer of the Company, would become the Acting Chairman and Acting Chief Executive Officer after entry of a settlement order. Value Line, which previously reported the investigation in public filings dating from back to 2005, was forced to restructure its investment management subsidiary and brokerage relationships and is confident that they conform to applicable regulatory requirements. Value Line management ended the mutual funds’ use of the affiliated brokerage in 2004.^[6]

Restructuring

As of December 23, 2010, Value Line, Inc. (“Value Line”) completed its previously announced restructuring of its asset management business(the “Transaction”) under EULAV Asset Management (“EAM”), a Delaware statutory trust. As part of the Transaction: (1) EULAV Securities, Inc. (“ESI”), a New York corporation and wholly owned subsidiary of Value Line that acted as the distributor of the 14 Value Line Mutual Funds (the “Value Line Funds”), was restructured into a Delaware limited liability company named EULAV Securities LLC; (2) Value Line transferred 100% of Value Line’s interest in EULAV Securities LLC to EULAV Asset Management, LLC (“EAM LLC”), a Delaware limited liability company and a wholly owned subsidiary of Value Line that acted as the investment adviser to the Value Line Funds and certain separate accounts; (3) EAM LLC was converted into EAM; and (4) EAM admitted Mitchell Appel, Avi T. Aronovitz, Richard Berenger, Howard B. Sirota and R. Alastair Short (the “Shareholders”) as holders of profits interests and Value Line restructured its ownership interests in EAM as described below. According to recent SEC filings Howard B. Sirota has resigned as trustee, but retains his 20% voting profits interest. Pursuant to EAM’s Declaration of Trust (the “Declaration of Trust”), Value Line has no voting authority with respect to the election or removal of the trustees of EAM and holds an interest in certain revenues of EAM and a portion of the residual profits of EAM. The Shareholders were selected by the independent directors of Value Line and hold residual profits interests in EAM. The Shareholders paid no consideration in exchange for their interests in EAM.^[7]

The business and affairs of EAM will be managed by five individual trustees (collectively, the “Trustees”) and by its officers subject to the direction of the Trustees. The Trustees are Mitchell Appel, Avi T. Aronovitz, Richard Berenger, R. Alastair Short and a Delaware resident trustee, The Corporation Trust Company, that exercises no authority. Value Line holds non-voting interests in EAM that entitle Value Line to receive a range of 41% to 55% of EAM’s revenues (excluding distribution revenues) from EAM’s mutual fund and separate account business. In addition, Value Line will receive 50% of the residual profits of EAM (subject to temporary increase in certain limited circumstances). The Shareholders will receive the other 50% of residual profits of EAM. EAM will elect to be taxed as a pass-through entity similar to a partnership. The Declaration of Trust also provides for distribution of proceeds in the event of a full or partial sale of EAM in accordance with capital accounts (currently approximately $56 million held entirely by Value Line) and then in accordance with a sharing formula set forth in the Declaration of Trust.^[7]

Board of Directors

The independence of the Value Line Board of directors was also questioned in so far as three former board members who disagreed with the majority holder, Buttner, were summarily removed without cause and replaced with new directors, including the current Westport, Connecticut Chief of Police, Alfred R. Fiore, where Buttner resides. Recent special dividends have depleted 94% of the shareholder equity. Section 304 of the 2002 Sarbanes-Oxley Act provides for executive clawbacks in the presence of malfeasance that results in the restatement of financial results.

Chief Legal Officer named acting CEO

Brecher, 57 years old, has been an officer of the Company for more than 17 years. Brecher was Chief Legal Officer, Secretary and Vice President of the Company, Vice President and Secretary of the Value Line Family of Funds, Secretary of EULAV Asset Management, LLC (since February 2009), and Vice President, Secretary, Treasurer, General Counsel and a Director of Arnold Bernhard & Co., Inc., the parent of the Company. Brecher is a graduate of Harvard University, Harvard Business School and Harvard Law School. He also holds a Master's degree in tax law from New York University.

In December 2009, Brecher abruptly terminated Samuel Eisenstadt, who had been with Value Line for over 60 years.^[8]

Lawsuits

According to New York State Court records Value Line and/or Jean B. Buttner have sued former employees, portfolio managers, analysts, architects, vendors and others including Yahoo and AOL. Value Line/Buttner have been represented as plaintiff by the late Irwin M. Echtman (Easton & Echtman, PC, NY, New York) (Etkind & Ecthman, LLP, NY New York) at least (9) nine times and as defendant at least five (5) times. One lawsuit involved Jean Buttner's twin brother.^[9]